Tom Herman
speaker
200 appearances
3 recordings
1 series
first heard Jan 2020
last heard Sep 2022
Tom Herman’s voice in public audio — every appearance, attributed to the second.
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Appearances
This is the time of year when many mutual funds typically distribute all or nearly all of their net realized capital gains to their investors.
Now, if you get one of these payouts, it may seem at first glance like an unexpected bonanza.
But in certain cases, this can pose a tax problem.
If you are investing for a taxable account, you need to do some research.
The basic advice is if you're thinking about jumping into a stock market mutual fund between now and the end of the year, find out if the fund you're considering is planning a large year-end capital distribution.
If so, ask how much and when, and look for what's called the record date to qualify for that payout.
You should be able to find out most of these details on the website of most major mutual funds.
Now, if the fund that you're thinking of investing in right away is about to make a major payout, consider waiting until after the payout
to qualify for the distribution.
By waiting until afterwards, you would avoid getting hit by what might be a sizable tax on realized capital gains that the fund had chalked up previously.
There is a good website called CapGainsValet.com
that has details on this subject as well as a lot of the details on payouts.
If you're thinking about making a major investment in a mutual fund that's about to make a big payout, consider investing in that fund for a tax-advantaged account, such as an IRA or a 401 .
Those investors typically do not have to worry about taxes on those payouts, so that's a very good option.
And another option is consider investing in what's called tax-efficient funds.
These are funds that typically focus on limiting capital gains distributions whenever possible by keeping their turnover low and also harvesting losses to offset gains.
This is a problem for mutual fund investors.
It's not a problem when you're holding individual stocks.
Although again, a lot of investors hold their individual stocks in tax-advantaged accounts like IRAs and 401ks because then again, you don't worry about taxes typically.
Donating stock can be an especially smart way for many people who itemize their deductions to contribute to their favorite charities.
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